What does TFSA stand for?
TFSA stands for tax-free savings account—a kind of investment account that’s registered with the Canadian government to help you save.
As a registered account, TFSAs are given tax-sheltered status by the government, and there are rules on how much money you can put in, when, and whether you pay tax on any money you take out.
Investment accounts aren’t investments, they’re accounts that hold investments. Most TFSAs allow you to pick from a variety of investment options, such as a basic daily interest account, guaranteed investment certificates or guaranteed interest accounts, stocks, bonds, or mutual funds—all based on a list approved by the Canadian government.
What are the benefits of a TFSA?
Some of the best things about saving for your goals with a TFSA are:
- You don't pay tax on investment income
- You don't pay tax on withdrawals
- Your unused contribution room carries over to the next year
- They're a great way to save money for retirement or short-term needs
What are the benefits of a group TFSA?
A group TFSA is a TFSA you join through your workplace or another organization you’re a part of. It's got all the same benefits as an individual TFSA, plus a few more:
- More competitive management fees than you might pay investing on your own
- Easy contributions through payroll deduction or lump-sum contributions
- You can manage all your group plans through your online member account
- You have access to the same online tools, services, and expert guidance available through your other group plans
Who should consider signing up for a TFSA?
Any Canadian aged 18 or over. TFSAs are a great way to save if you’re:
- Saving for short-term or mid-term goals, such as new technology, car repairs, or an emergency fund
- At the start of your career and expect your income to grow in the future
- Likely to want a little flexibility in retirement to pay for something unexpected, renovate, or travel
How much can you put in your TFSA?
Every year, you can contribute up to the limit set by the government, plus any unused contribution room from previous years. The TFSA contribution limit for 2023 is $6,500. This amount can change yearly based on inflation, rounded to the nearest $500.1
Annual contribution room since TFSAs were introduced in 2009
- $5,000 from 2009 to 2012
- $5,500 for 2013 and 2014
- $10,000 for 2015
- $5,500 from 2016 to 2018
- $6,000 for 2019 to 2022
Where to find your TFSA contribution limit and contribution room for this year
Since financial institutions report TFSA contributions and withdrawals to the Canada Revenue Agency (CRA), you can find your current contribution limit and contribution room by calling CRA at 800-959-8281 or by signing in to My Account.
What happens if you go over your TFSA contribution room?
The extra contributions will be subject to a tax of 1% per month for each month that the excess remains in your TFSA.
Are TFSA contributions tax deductible?
No. Contributions to your TFSA are not tax deductible, which means they won’t lower the amount you have to pay when you file your income tax. If you’re interested in tax-deductible contributions, the question you want to ask is, "What’s an RRSP?"
Are there minimum or ongoing contributions needed for a TFSA?
No. You can contribute by payroll deduction or make lump-sum contributions anytime you like, as long as you don’t exceed your contribution limit.
Are there limits to how much you can take out of your TFSA?
No. And a withdrawal from a TFSA creates extra contribution room in the next year’s limit. For example, if you take $1,000 from your TFSA in 2023, you’ll have $1,000 added to your contribution limit in 2024.
There’s also no minimum amount you have to take out per year or per withdrawal.
Do you have to pay tax on the money you take out of your TFSA?
Never. But your financial institution may charge a fee for making a withdrawal.
What happens to your TFSA if you die?
You can name one or more beneficiaries. You can also name your spouse or common-law partner as successor holder of your TFSA if you die. Your spouse would then become the new holder of the account, which would keep it tax sheltered.
Is a TFSA right for you?
No matter what you’re saving for, a TFSA can help you get there. But there are other plans that may help you save for the future you dream of. Be sure to ask for advice from an expert you trust to help you decide whether the benefits of a TFSA, or a group TFSA, are right for you.
The commentary in this publication is for general information only and should not be considered legal, financial, or tax advice to any party. Individuals should seek the advice of professionals to ensure that any action taken with respect to this information is appropriate to their specific situation.